The impact of public debt on the twin imbalances in Europe: A threshold model

The impact of public debt on the twin imbalances in Europe: A threshold model

Blog Article

Recent empirical research w insta saree rejecting twin deficits in indebted countries and current account imbalances adjustment in Europe led to the idea to test the twin imbalances at different public debt-to-GDP intervals.The analysis covers 14 EU countries over the time period 1995-2012.A panel data threshold model with fixed effects estimates two debt-to-GDP thresholds (40.

2% and 96.6%), which determine three debt-to-GDP intervals in the twin relationship.If public debtto-GDP is less than 40.

2%, the model determines a negative relationship (twin divergence) between budget balance and current account.Twin deficits (surpluses) are confirmed exclusively if debt-to-GDP is in the interval between 40.2% rowenta dr8270 and 96.

6%.A twin divergence is also confirmed if public debt-to-GDP is more than 96.6% (e.

g., as in Greece and Italy).The results confirm that increased indebtedness in European countries contributed to their current account imbalance adjustment.